§4980H Employer Shared Responsibility (Employer Mandate) Considerations

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employer considerations

employer mandate considerations

An ICHRA can be designed to meet the §4980H requirements which apply to Applicable Large Employers (ALEs)

§4980H Minimum Essential Coverage and Minimum Value Requirements:

To meet the §4980H(a) requirements an employer must offer Minimum Essential Coverage (MEC) to at least 95% of their full-time employees.

An ICHRA will always be considered an offer of MEC for purposes of satisfying §4980H(a) requirements. The IRS has not set any minimum employer contribution

To satisfy §4980H(b) an employer must offer coverage that provides minimum value (an actuarial value of at least 60%) and is considered “affordable” (based on the §4980H definition)

An ICHRA that reimburses individual health coverage will automatically be considered a minimum value offer of coverage for purposes of §4980H(b) if it is “affordable”.

§4980H Affordability

For an offer of coverage to be considered affordable, the employee contribution cannot exceed a set percentage (9.78% in 2020) of an employee’s household income (or one of the affordability safe harbors – federal poverty level, rate of pay, or Form W-2).

The determination of affordability for an ICHRA is somewhat more complicated that determining affordability for a group health plan. The affordability of an ICHRA is tied to the lowest cost silver plan available on the public Exchange based on where the employee works. The problem is that individual health insurance premiums vary by age and location, so the affordability calculation will be different for employees of different ages and worksites. Employers will need help analyzing their contribution.

Premium for lowest cost silver plan

Monthly employer reimbursement amount

Monthly employee cost used to determine affordability

Individual health coverage premiums vary by an individual’s location and age. This makes it a bit more challenging to determine affordability for all full-time employees. To help address this challenge, the proposed rules provide the following guidance: 

  • Rates by Age – Affordability can be based on the employee’s age on the first day of the plan year, or when the employee is first eligible for the ICHRA, to avoid having to make adjustments in accordance with age changes during the plan year.
     
  • Location Safe Harbor – Instead of using the lowest cost plan available where the employee resides, an employer can use the cost of the plan at the employee’s primary site of employment. An employee’s primary site of employment is the location at which the employer reasonably expects the employee to perform services, which may be the employee’s residence if the employee does not have a particular assigned office space or a worksite to which to report. 
  • Look-Back Month Safe Harbor – An employer with a calendar year plan may use the monthly premium for the lowest cost silver plan for January of the prior calendar year. An employer with a non-calendar year plan year may use the monthly premium for the lowest cost silver plan for January of the current calendar year. The agencies have promised to provide employers with access to location-specific lowest cost silver plan premium data on a month-by-month basis.

     

  • Non-Tobacco Rates – As with group health plans, affordability is based on plan premiums applicable to non-tobacco users.